This blog is intended to encourage an exchange of ideas and promote debate about the financial issues that arise in a relationship breakdown. The concept is to create a platform for discussion that is not available elsewhere. Aimed mainly at professionals working in this area; lawyers, accountants, financial advisors and actuaries, it is also a potential source of information for the general public.

In our experience there is a significant variance in how professionals handle pension assets in divorce, with little consensus on which methods give the best outcome. We feel this is due in part to a lack of centralised knowledge and debate on what can be a complex issue. We intend to address this by posting our original articles on key subjects, as well as those contributed by others. Our intention is to post quality, discussion-worthy topics at least once a month, or more often if the need arises.

We encourage comments and contributions from all. Comments can be added to the articles on-line, if you would like to submit an article please email us at ancillaryactuary@bradshawdixonmoore.com.

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That'll Teach You!

We recently had a case that illustrates the rule of unintended consequences in operation.

Our client, a teacher needed to obtain a Cash Equivalent Value (CEV) of his pension from the Teachers’ Pension Scheme. His question to us concerned which CEV he should request. Being the season of goodwill, we avoided the temptation to suggest that he just obtains the correct one.

As it happens, we know that this client was a Head Teacher but he has recently returned to classroom teaching with a resulting change in salary.  It transpired that the Teachers’ Pension Scheme was offering two alternative processes. Option one was that they would provide an estimated CEV based on the information they currently have on record which could be done reasonably quickly and without charge. To the uninitiated, the option of a “Full CEV” that may take three months to provide was the less attractive of the two, despite the fact that it too would not be charged for.

What our client understandably did not know is that pension scheme employment and earnings records are often a little out of date. Schemes are not necessarily informed of changes in working hours or salary immediately they occur. It is more likely that data is updated on an annual basis. In this particular case, the estimated CEV could have been incorrect and therefore unreliable as a basis for a financial settlement in divorce. Had an estimate been provided and the subsequent need for a full CEV established not only would this have led to further delays but as the second request would be within the same twelve month period the client would be charged for the second CEV.

Three months is a long time to wait for a CEV so it is worth giving some consideration to why it can take so long. Surprisingly, the answer does not lie in bureaucratic inefficiencies. In common with the NHS pension scheme, the standard approach of the TPS to a CEV request is to issue a PoD (Pensions on Divorce) pack to the member. Included in the pack is a form that the member part-completes then passes to their current employer who provides additional information and sends the completed form to the scheme. That way, the scheme is able to calculate a CEV based on the most up to date data, but this process can take a while particularly if employers do not deal with their part as quickly as they might.

We often think that actuarial pension reports are similar to icebergs in that there is an awful lot going on beneath the surface. Clients often do not appreciate just how much work is required to produce an appropriate professional report. Another recent case of ours illustrates why as a business we choose to provide actuarial pension reports when they could be cheaper if done by our other technical experts.

When producing expert witness reports, like any other expert, actuaries are obliged to comply with the relevant court rules and practice directions. Actuaries are also bound by the Code of Practice of their professional body and in many cases this places obligations on an actuary that are beyond those that would be required of another expert. For example, an actuary is under a professional obligation to make checks to satisfy him or herself that the data used in any actuarial calculations is reasonable. In terms of scheme calculated CEVs, where the calculation basis is known, as it is with the public sector pension schemes, the actuary is likely to reconcile the CEV against all the other available data. This is not always as easy as it might seem. In another recent case our actuaries could not reconcile the scheme calculated CEV with the other data. Strongly suspecting that the calculation tables and factors had been incorrectly applied, the concerns were initially raised with the scheme. As this failed to resolve the matter our actuaries were placed under a professional obligation to raise the point with the scheme actuary. It transpired that the scheme had been incorrectly applying the calculation approach set down by the scheme actuary and appropriate corrective action was taken.

As with many things in life, price and quick turnaround are not necessarily the best indicators of quality.

Posted on Tuesday, December 11, 2012 by Registered CommenterThe Ancillary Actuary | CommentsPost a Comment

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